Financial turmoil persists under Reeves' administration; doubts grow over her assertions of a structural fix: ALEX BRUMMER (rephrased)
Rewritten Output
It's a relief to give thanks for tiny victories. Chancellor Rachel Reeves, stepping into her second International Monetary Fund (IMF) summit, did not arrive empty-handed.
The UK, renowned for championing free trade and open markets, has been painfully declaring that it's senseless to antagonize an irascible White House, by bucking Donald Trump's tariff conflict with allies.
However, somehow, Silicon Valley became a major casualty of this tariff war. Much of the innovation may originate from the 'Magnificent Seven' tech firms, but manufacturing production left the scene long ago.
Reeves aims to reinforce the UK's commitment to free, open, and fair trade, without resorting to reciprocal levies as threatened by the EU, Canada, China, and others. Instead, she's listening to business, particularly retailers, and intends to fortify barriers against the dumping of goods at UK ports.
Cheap steel might be desirable, as the UK expands its military capabilities and embarks on key Labour commitments, such as infrastructure development. Allowing the dying remnants of our steel industry to disappear and shutting down blast furnaces before replacements are in place was never a wise choice.
Challenges:
Rachel Reeves is prepping for her second IMF gathering in Washington, ahead of trade talks.
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Blocking the free flow of packages under £135 into the UK might prove a bureaucratic hurdle. But the risks of China and other Eastern countries channeling goods previously destined for America to Britain are an obvious response.
The quality and surveillance of trade flows and data are crucial exercises if dumping is to be rectified. It's strange that the US thinks it has a goods trade surplus with Britain when for years UK data has said otherwise.
Trade and tariffs loom over the global economic landscape, elevating the risk of global recession to 40 per cent, according to the latest IMF analysis, and hanging a sword of Damocles over financial stability and undermining budgetary restraint.
The Fund's Fiscal Monitor report, released yesterday, is alarming. It projects that the scale of borrowing in 2025 will skyrocket globally by 2.3 per cent of total output, double the expansion last year. Overall debt levels will balloon to 117 per cent of gross domestic product, a record high since the Second World War.
Reeves may speak passionately about trade but her fiscal troubles loom large. The latest borrowing figures are dismal.
Just a month after the Spring Statement, the deficit for the 2024-5 fiscal year climbed to £152 billion. That's £15 billion more than projected.
The IMF warning that fiscal buffers need to be beefed up could be directly aimed at the UK. When Reeves set her fiscal rules in October 2024, she left herself just £10 billion of wiggle room.
This has already vanished by the Spring Statement when it was restored partly by cutting welfare and disabled benefits. But the looming peril will inevitably come back to haunt the Chancellor. UK deficits, according to IMF data, will plateau as a percentage of GDP but not swiftly enough to lower the national debt.
It's rising to 105 per cent of national wealth next year and shows no signs of abating.
Reeves' claims to have sealed the foundation are looking premature. Slower-than-expected growth (partly due to ill-advised tax decisions) has depleted the buffers. Trump's tariffs and a decline in faith in Britain's fiscal settlement are keeping bond rates elevated and inflating the cost of servicing the national debt.
All this is before the UK has to find fiscal room for its defense spending and the mad dash for net zero. The upcoming public spending round in June will be painful, but is unlikely to move the dial.
The tariff and market shocks demonstrate the folly of ignoring monitors, like the Institute for Fiscal Studies, which cautioned from the start that UK budget policy was vulnerable to global shocks.
Reeves could have a successful IMF gathering, especially if she receives a sympathetic hearing from US Treasury Secretary Scott Bessent in a one-on-one meeting.
But the strain of keeping to fiscal rules could eventually destabilize her tenure at Number 11.
- Rachel Reeves faces a challenging IMF gathering in Washington as she aims to reinforce the UK's commitment to free trade, despite the looming threats of tariffs and potential goods dumping from China and other Eastern countries.
- In the face of the rising risk of global recession due to trade and tariff disputes, highlighted by the latest IMF analysis, Reeves may find it difficult to maintain the UK's financial stability and budgetary restraint, given the failure to beef up fiscal buffers as warned by the IMF.
- The ongoing tariff conflicts have already caused significant problems for businesses, such as Silicon Valley, which have felt the impact of this trade war, even though they are not directly involved in manufacturing production.
- Despite the potential instability caused by tariffs, UK retailers are counting on Reeves to fortify barriers against the dumping of goods at UK ports, as the cheap flow of packages under £135 into the UK poses a potential bureaucratic hurdle.
